Only 10% of firms have fully mastered globalisation: study

 

The findings are discussed in “The Globalisation Capability Gap: Execution, Not Strategy, Separates Leaders from Laggards”, a report released recently.

The key findings included the following. 

First, companies have high global aspirations and confidence in their global strategies, but only about 10 per cent have fully mastered the capabilities needed to win overseas. Mergers and acquisitions are critical weaknesses. 

Second, line managers who run businesses or regions are much more pessimistic about their companies’ global readiness than headquarters staff. 

The third major finding was that midsize companies are at the greatest risk in going global. They are less nimble than smaller companies and do not have the scale or systems of larger ones.

“Companies clearly recognise the need to globalise, but few of them are truly ready to execute and bring to life their global strategies,” said Dinesh Khanna, a partner and managing director in the Singapore office of BCG. “Companies that want to win overseas should be focusing on the nuts and bolts of going global.”

BCG and IMD conducted the “Global Readiness Survey” to understand both the aspirations and the preparedness of companies to go global. 

About 75 per cent of respondents reported that their companies planned to increase their international share of business, but only 10 per cent rated themselves above average across 22 capabilities required to go global.

Several practices essential to globalisation, such as establishing a global supply chain and spreading best practices, rank in the bottom third of capabilities. Overall, respondents rated their companies below average on 15 of the 22 capabilities.

Global expertise in mergers and acquisitions was the lowest-rated capability by a wide margin. Its “readiness score” was 34 per cent. (A score of 100 per cent indicates that a company has perfected the capability.)

 

Headquarters bias

The Global Readiness Survey also found a disconnect between the views of executives who work at headquarters and those who work in the field. Headquarters staff have a far more optimistic view of their companies’ globalisation readiness than line executives. 

The biggest differences have to do with whether the organisation has an open mindset, aligned performance incentives to support the global agenda, and best practices effectively spread across the organisation.

Small, midsize and large companies have similar globalisation aspirations, but vast differences separate their readiness to globalise, according to the survey.

Most strikingly, midsize companies, with annual revenues from US$1 billion to $10 billion, underperform their larger and smaller peers across most capabilities. 

They have neither the scale of large organisations nor the agility and effectiveness of smaller ones.

Large companies do better than midsize and small companies in core business capabilities such as setting up a global supply chain. But they do relatively poorly on capabilities related to learning and agility, leaving them vulner-able during periods of rapid change. 

Small companies, on the other hand, are fleet-footed but have not mastered local markets overseas and may misunderstand their competitors abroad.